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    Hola-Kola Computations

    Uploaded by

    Kristine Nitzkie Salazar
    The document summarizes the cash flow statement of Hola-Kola over 5 years. Key metrics calculated include: - Payback period of 3.22 years - Accounting rate of return (ARR) of 16.07% - Net present value (NPV) at 18.2% discount rate of $1,734,975.96 - Internal rate of return (IRR) of approximately 19.62670% Based on the positive NPV and payback period less than 5 years, the conclusion is that the investment in Hola-Kola is financially viable and should be accepted.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd

    Hola-Kola Computations

    Uploaded by

    Kristine Nitzkie Salazar
    35 views7 pages
    The document summarizes the cash flow statement of Hola-Kola over 5 years. Key metrics calculated include: - Payback period of 3.22 years - Accounting rate of return (ARR) of 16.07% - Net present value (NPV) at 18.2% discount rate of $1,734,975.96 - Internal rate of return (IRR) of approximately 19.62670% Based on the positive NPV and payback period less than 5 years, the conclusion is that the investment in Hola-Kola is financially viable and should be accepted.

    Original Description:

    Hola-Kola Computations

    Original Title

    Hola-Kola_computations

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    The document summarizes the cash flow statement of Hola-Kola over 5 years. Key metrics calculated include: - Payback period of 3.22 years - Accounting rate of return (ARR) of 16.07% - Net present value (NPV) at 18.2% discount rate of $1,734,975.96 - Internal rate of return (IRR) of approximately 19.62670% Based on the positive NPV and payback period less than 5 years, the conclusion is that the investment in Hola-Kola is financially viable and should be accepted.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    35 views7 pages

    Hola-Kola Computations

    Uploaded by

    Kristine Nitzkie Salazar
    The document summarizes the cash flow statement of Hola-Kola over 5 years. Key metrics calculated include: - Payback period of 3.22 years - Accounting rate of return (ARR) of 16.07% - Net present value (NPV) at 18.2% discount rate of $1,734,975.96 - Internal rate of return (IRR) of approximately 19.62670% Based on the positive NPV and payback period less than 5 years, the conclusion is that the investment in Hola-Kola is financially viable and should be accepted.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 7

    Cash Flows of Hola-Kola

    Year 1 Year 2
    Price 5.00 5.00
    Volume (600,000/month) 7,200,000 7,653,600
    Sales 36,000,000.00 38,268,000.00
    Less: Cost of Goods Sold
    Variable costs (raw materials at 1.80/liter) 12,960,000.00 13,776,480.00
    Labor costs 2,160,000.00 2,296,080.00
    Overhead costs (1% of sales) 360,000.00 382,680.00
    Gross profit 20,520,000.00 21,812,760.00
    Less: Operating expenses
    Energy costs 600,000.00 637,800.00
    Administrative and selling 300,000.00 318,900.00
    Building rental (opportunity costs) 60,000.00 60,000.00
    Operating profit/EBITDA 19,560,000.00 20,796,060.00
    Less: Depreciation and interest exp.
    Depreciation expense 9,200,000.00 9,200,000.00
    Interest expense on term loan 1,600,000.00 1,600,000.00
    EBIT 8,760,000.00 9,996,060.00
    Tax (30%) 2,628,000.00 2,998,818.00
    Net profit after tax 6,132,000.00 6,997,242.00
    Add: Depreciation expense 9,200,000.00 9,200,000.00
    Less: After-tax erosion costs (opportunity costs) 800,000.00 800,000.00
    Free cash flows 14,532,000.00 15,397,242.00

    Assumptions:
    6.3% compounded annual growth rate (CAGR)
    Interest expense is P1,600,000 per year
    Kola

    Year 3 Year 4 Year 5


    5.00 5.00 5.00
    8,135,777 8,648,331 9,193,176
    40,678,884.00 43,241,653.69 45,965,877.87

    14,644,398.24 15,566,995.33 16,547,716.03


    2,440,733.04 2,594,499.22 2,757,952.67
    406,788.84 432,416.54 459,658.78
    23,186,963.88 24,647,742.60 26,200,550.39

    677,981.40 720,694.23 766,097.96


    338,990.70 360,347.11 383,048.98
    60,000.00 60,000.00 60,000.00
    22,109,991.78 23,506,701.26 24,991,403.44

    9,200,000.00 9,200,000.00 9,200,000.00


    1,600,000.00 1,600,000.00 1,600,000.00
    11,309,991.78 12,706,701.26 14,191,403.44
    3,392,997.53 3,812,010.38 4,257,421.03
    7,916,994.25 8,894,690.88 9,933,982.41
    9,200,000.00 9,200,000.00 9,200,000.00
    800,000.00 800,000.00 800,000.00
    16,316,994.25 17,294,690.88 18,333,982.41
    A. PAYBACK PERIOD

    Original Investment
    PAYBACK PERIOD =
    Annual cash flow

    After-tax cash flows


    Year 1 14,532,000.00
    Year 2 15,397,242.00
    Year 3 16,316,994.25
    Year 4 17,294,690.88
    Year 5 18,333,982.41

    Time needed for


    Unrecovered investment Annual cash flow
    Payback (years)

    Year 1 50,000,000.00 14,532,000.00 1


    Year 2 35,468,000.00 15,397,242.00 1
    Year 3 20,070,758.00 16,316,994.25 1
    Year 4 3,753,763.75 17,294,690.88 0.22 *
    Year 5 - 18,333,982.41 0
    3.22 years

    * 3,753,763.75/17,294,690.88
    = 0.22

    B ACCOUNTING RATE OF RETURN

    Accounting Rate of Average income


    =
    Return Initial investment

    Add: Opportunity
    After-tax net profit (based
    costs (60,000 for
    on the table)
    rental)

    Year 1 6,132,000.00 60,000.00 6,192,000.00


    Year 2 6,997,242.00 60,000.00 7,057,242.00
    Year 3 7,916,994.25 60,000.00 7,976,994.25
    Year 4 8,894,690.88 60,000.00 8,954,690.88
    Year 5 9,933,982.41 60,000.00 9,993,982.41
    39,874,909.54 300,000.00 40,174,909.54
    divided by: 5 years
    Average net profit 8,034,981.91
    Accounting Rate of 8,034,981.91
    =
    Return 50,000,000.00
    = 16.07%

    C. NET PRESENT VALUE

    PV Factor at 18.2%
    Year 1 0.8460 14,532,000.00 12,294,072.00
    Year 2 0.7158 15,397,242.00 11,021,345.82
    Year 3 0.6055 16,316,994.25 9,879,940.02
    Year 4 0.5123 17,294,690.88 8,860,070.14
    Year 5 0.4334 18,333,982.41 7,945,947.98
    PV of cash inflows 50,001,375.96
    Add: PV of 4 million resale
    value of machines after five 1,733,600.00
    years
    Pv of cash outflows (50,000,000.00)
    NPV 1,734,975.96

    PV Factor at 16%
    Year 1 0.8621 14,532,000.00 12,528,037.20
    Year 2 0.7432 15,397,242.00 11,443,230.25
    Year 3 0.6407 16,316,994.25 10,454,298.21
    Year 4 0.5523 17,294,690.88 9,551,857.77
    Year 5 0.4761 18,333,982.41 8,728,809.03
    PV of cash inflows 52,706,232.47

    Add: PV of 4 million resale


    value of machines after five 1,904,400.00
    years

    Cost of investment (50,000,000.00)


    NPV 4,610,632.47

    C. INTERNAL RATE OF RETURN

    ***TRIAL AND ERROR***

    PV Factor at 20% PV Factor at 19.5%


    Year 1 0.8333 14,532,000.00 12,109,515.60 Year 1
    Year 2 0.6944 15,397,242.00 10,691,844.84 Year 2
    Year 3 0.5787 16,316,994.25 9,442,644.57 Year 3
    Year 4 0.4823 17,294,690.88 8,341,229.41 Year 4
    Year 5 0.4019 18,333,982.41 7,368,427.53 Year 5
    PV of cash inflows 47,953,661.96

    Add: PV of 4 million resale


    value of machines after five 1,607,600.00
    years

    Pv of cash outflows (50,000,000.00)


    NPV (438,738.04)

    Note: IRR is somewhere between 19.5% and 20%

    Payback period 3.22 years


    ARR 16.07%
    NPV 1,734,975.96
    IRR 19.62670%

    YES TO HOLA-KOLA!!!
    V Factor at 19.5%
    0.8368 14,532,000.00 12,160,377.60
    0.7003 15,397,242.00 10,782,688.57
    0.5860 16,316,994.25 9,561,758.63
    0.4904 17,294,690.88 8,481,316.41
    0.4104 18,333,982.41 7,524,266.38
    PV of cash inflows 48,510,407.59

    Add: PV of 4 million
    resale value of
    1,641,600.00
    machines after five
    years

    Pv of cash outflows (50,000,000.00)


    NPV 152,007.59

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